MBA (Master in Business Administration)

FI612: Financial Environment Instructor: Dr. Loukia Evripidou FINAL PR !E"#: " MPRE$EN%I&E ANAL'%I% (rou) Mem*ers: Sheena Mayadas S20091307 enny ! "a#arian $200%1%&2 Evan'e(os )ndreou $200%19*0 +yriacos ,en'eris S20091300 -anesh .prety $200*7&% Fall %emester 2++, F MI"R % F#

#a*le o- "ontents 1.)/out Microso0t...............................................................................................................3

1.1.!istory ............................................................................................................................. 3 1.2.1ore )ctivities..................................................................................................................3 1.3.Microso0t Mission and 2a(ues...........................................................................................3 1.3.Stren'ths and 4eaknesses.............................................................................................3

2.Strate'y and 5er0or6ance o0 Microso0t..........................................................................&

2.1.$isca( year 200%...............................................................................................................& 2.2.$irst 7uarter 2009............................................................................................................. *

3.1(ients.............................................................................................................................7 3.1o6petitors ...................................................................................................................7 &.5er0or6ance )na(ysis 8 Microso0t 2s 1o6petitors.........................................................%

&.1.Industry 5er0or6ance.......................................................................................................% &.2.$inancia( Stren'th ...........................................................................................................9 &.3.Li7uidity ratios:............................................................................................................... 11

*.9e'u(ators ....................................................................................................................11
*.1..S SE1.9I,IES )"D E:1!)"-E 1;MMISSI;" .....................................................12 *.2.."I,ED S,),ES $EDE9)L E:E1.,I2E DE5)9,ME", ..........................................12 *.3.E.9;5E)" 1;MMISSI;"...........................................................................................13

7.Short and Lon' ,er6 5erspectives..............................................................................13

7.1.Microso0t E<pands 2irtua(i=ation Initiatives >ith !5.......................................................13 7.2.,he >or(d>ide (aunches o0 4indo>s 7 ;peratin' Syste6.............................................13 7.3.E ay ,ea6s .p 4ith Microso0t to ;00er Dai(y Dea(s......................................................1* 7.3.Microso0t /uys data 1entre so0t>are 0ir6 ;pa(is............................................................1*

%.1onc(usion ...................................................................................................................17 9.9e0erences....................................................................................................................1% 10. )55E"DI:.................................................................................................................21

1. A*out Microso-t 1.1. History Microso0t 1orporation >as 0ounded in the ear(y 1970?s /y 4i((ia6 !enry -ates III >ith the intention to deve(op and se(( )SI1 interpreters 0or the )(tair %%00. Microso0t rose to do6inate the ho6e co6puter operatin' syste6 6arket >ith MS8D;S in the 6id819%0s@ 0o((o>ed /y the introduction o0 4indo>s (ine o0 operatin' syste6s. Microso0t?s products have 6ana'ed to achieve achieved 'reat success in the desktop co6puter 6arket. ,hrou'hout its history@ Microso0t has ho>ever /een the tar'et o0 criticis6 a'ainst certain A6a(? practices@ inc(udin' accusation 0or 6onopo(istic /usiness practices and anti8 co6petitive strate'ies inc(udin' re0usa( to dea( and various tyin' arran'e6ents. ,he ..S. Bustice Depart6ent and the European 1o66ission@ a6on' others@ have ru(ed a'ainst Microso0t 0or various antitrust vio(ations. Microso0t possesses 0ootho(ds in other 6arketsC >ith assets such as the MS" 1 ca/(e te(evision net>ork@ the MS" Internet porta(@ and Microso0t Encarta 6u(ti6edia encyc(opaedia. ,he co6pany a(so 6arkets /oth co6puter hard>are products such as the Microso0t 6ouse as >e(( as ho6e entertain6ent products such as the :/o<@ :/o< 3*0@ Dune and MS" ,2 >hich are a(so 6a#or success stories 0or the co6pany. Microso0tEs initia( pu/(ic stock o00erin' FI5;G >as in 19%* and the ensuin' rise o0 the co6panyEs stock price (ed to the creation o0 0our /i((ionaires and an esti6ated 12@000 6i((ionaires a6on'st Microso0t e6p(oyees. 1.2. Core Activities Microso0t 1orporation is a .nited States 6u(tinationa( co6puter techno(o'y corporation that deve(ops@ 6anu0actures@ (icenses and supports a >ide ran'e o0 so0t>are products 0or co6putin' devices. !ead7uartered in 9ed6ond@ 4ashin'ton@ .S)@ its 6ost pro0ita/(e products are the Microso0t 4indo>s operatin' syste6 and the Microso0t ;00ice suite o0 productivity so0t>are.

1.3. Microsoft Mission and Values "A computer on every desk and in every home around the world, running Microsoft software." H Microso0t?s 6ission state6ent F3G. Microso0t is co66itted in its (on' ter6 6ission o0 he(pin' its custo6ers rea(i=e their 0u(( potentia(. ,he co6pany constant(y updates and i6proves its products@ continua((y evo(vin' >ith the 6arket so as to /e in the /est position to acce(erate ne> techno(o'ies as and >hen they e6er'e@ and to /e in a /etter position to serve their o>n custo6ers. F12G )t the heart o0 Microso0t?s success is their co66it6ent to innovation and their devotion to investin' 6ore in research and deve(op6ent co6/ined >ith the use o0 ta(ented researchers@ scientists and en'ineers >orkin' across the '(o/e to create ne> techno(o'y /reakthrou'hs. 1.4. Strengths and Weaknesses ) S4;, ana(ysis he(ps to c(assi0y the interna( stren'ths and >eaknesses o0 the co6pany versus e<terna( situationa( 0actors such as opportunities and threats. Stren'ths serve as a 0oundation 0or /ui(din' co6petitive advanta'e@ and >eaknesses 6ay hinder it. y understandin' these 0our aspects o0 an environ6enta( situation@ a 0ir6 can /etter (evera'e its stren'ths@ correct its >eaknesses@ capita(i=e on 'o(den opportunities@ and deter potentia( threats. 1./.1. %tren0t1s ) Mu(tinationa( 1orporation that operates throu'h re'iona( su/sidiaries to 6ini6i=e cu(tura( di00erences in 6ore than *0 countries. -(o/a( reco'nition o0 the AMicroso0t? na6e and the co6pany?s a/i(ity 0or rapid product deve(op6ent. Microso0t?s product? inter0aces are considera/(y Auser 0riend(y? 5ro(i0eration o0 Microso0t ;00ice productivity suite F4ord@ E<ce(@ ;ut(ook@ etc.G throu'hout the /usiness co66unity

$(e<i/(e@ Loya(@ hard>orkin'@ and diverse >ork0orce F20I 6inority@ 2*I >o6enG >ho@ in addition to 'ood co6pensation@ have an opportunity to do >e(( 0inancia((y throu'h stock purchases.

4indo>s 9&@ 9%@ 2000 series@ 4indo>s ",@ 4indo>s :5 and 4ido>s 2ista are '(o/a((y kno>n as the 51 desktop operatin' syste6 >ith a 6arket share o0 a/out %%I. 1./.2. 2ea3nesses

et>een 19908199&@ Microso0t (eadership 0ai(ed to correct(y anticipate the 'ro>th and popu(arity o0 the Internet. ,his (e0t roo6 0or -oo'(e to 'ra/ a 0ootho(d in the search en'ine arena

Dependency on hard>are 6anu0acturers to pre8insta(( Microso0tEs 51 operatin' syste6. ,he co6pany has e<perience increases in e6p(oyee turnover 0ro6 *I 0or a ten year period to 7.3I $a((in' sa(es in their operatin' syste6s and server so0t>are sectors Litt(e or no si'ni0icant presence in the >ire(ess 6arket and 4indo>s 1E has /een disappointin' 5erceived /y 6any as a cut8throat co6petitor that uses its do6inant 6arket position to 6ar'ina(i=e co6petition /y stea(in'Jdestroyin' the co6petitionEs products@ sti0(in' product innovation@ and decreasin' the avai(a/i(ity o0 co6petitor products.

5roducts have a sin'(e app(ication 0ocus and do not >ork >e(( >ith or on8top o0 other products F1%G K F19G

2. %trate04 and Per-ormance o- Microso-t )s 6entioned@ Microso0t?s corporate strate'y is hi'h(y custo6er oriented 0ocusin' on >ays to de(iver ne> and innovative 6eans o0 addressin' ho> custo6ers use their so0t>are@ and to o00er so(utions to /usiness pro/(e6s. 2.1. iscal year 2!!" $isca( year 200% >as a success0u( year 0or Microso0t and sa> the co6pany de(iver outstandin' 0inancia( resu(ts and introduce si'ni0icant innovations across the /readth o0 5

their product port0o(io@ 0urther 6akin' key invest6ents to position the co6pany 0or stron' 0uture 'ro>th. ,hanks to the continued success o0 their core 4indo>s and ;00ice /usinesses@ and positive 'ro>th in a(( o0 the 1o6pany?s /usiness 'roups@ revenue #u6ped to L*0.3 /i((ion in 0isca( 200%@ an increase o0 1% percent co6pared >ith the previous 0isca( year and a positive indicator 0or e<istin' shareho(ders F1G. )dditiona((y@ earnin's per share reached L1.%7 and Microso0t returned L1*.& /i((ion to shareho(ders throu'h stock /uy/acks and dividends F1G. ) nu6/er o0 key announce6ents >ere 6ade throu'hout the year concernin' i6portant chan'es to their techno(o'y and /usiness practices and so as to increase openness o0 their products and drive 'reater interopera/i(ity and choice 0or deve(opers@ partners@ custo6ers@ and co6petitors. ,he co6pany 0urther announced i6portant strate'ic ac7uisitions to stren'then their o00erin's in key 6arkets and add to their /road innovation port0o(io. So6e e<a6p(es inc(uded the ac7uisitions o0 )dE1"@ 9apt and MaData@ >hich /rou'ht (eadin'8ed'e capa/i(ities 0or advertisers and pu/(ishers to Microso0t?s advertisin' p(at0or6. $urther6ore@ the ac7uisition o0 1a(ista ,echno(o'ies and +idaro@ ena/(ed the co6pany to continue to position the6se(ves as a (eader in the critica( 6arket 0or virtua(i=ation F1G. )nother i6portant event >hich took p(ace in $e/ruary 200%@ >as Microso0t?s proposa( to ac7uire MahooN. ,he proposed transaction >as desi'ned to acce(erate the co6pany?s strate'y in on(ine search and advertisin'. !o>ever@ a0ter care0u( consideration@ Microso0t deter6ined that the econo6ics o0 the dea( ter6s de6anded /y MahooN and the need to 6ove 0or>ard 7uick(y in partnership on re'u(atory revie> and to inte'rate the t>o co6panies 6eant that the dea( >as no (on'er in the /est interest o0 Microso0t shareho(ders. "onethe(ess@ despite the dea( /ein' dropped@ Microso0t re6ains co66itted to /ein' a (eader in on(ine search and advertisin' and 6ake invest6ents that >i(( ena/(e the6 to succeed. 2.2. irst #uarter 2!!$ $irst 7uarter o0 2009 0urther sa> Microso0t /ene0it 0ro6 stron' per0or6ance as a resu(t o0 stron' 4indo>s and :/o< de6and and e<ecution@ thus resu(tin' in stron' revenue in0(o>. ,he 1o6pany continued >ith its cost discip(ine strate'y and sa> its /usiness se'6ents sta/i(i=e. ,he co6pany 0urther /ene0ited 0ro6 ad#usted E5S 'ro>th o0 %I co6pared >ith 200% and an operatin' cash 0(o> o0 L*.1 /i((ion F2G K F1*G.

5. "lients Microso0t strives to provide products and service >hich cater to the needs o0 serve Individua( consu6ers@ s6a(( and 6ediu68si=ed or'ani=ations@ enterprises@ 'overn6enta( institutions@ educationa( institutions@ Internet service providers@ app(ication deve(opers@ and ;ri'ina( E7uip6ent Manu0acturers F;EMsG. 1onsu6ers as >e(( as s6a(( to 6ediu6 si=ed or'ani=ations o/tain Microso0t products pri6ari(y throu'h rese((ers and ;EMs. "o sa(es to any individua( custo6er accounted 0or 6ore than 10I o0 0isca( year 2009@ 200%@ or 2007 revenue F*G. Microso0t /e(ieves their 0ive /usiness se'6ents o00er the 'reatest potentia( to serve custo6ers:

"lient : Inc(udes the 4indo>s product 0a6i(y and is responsi/(e 0or their re(ationship >ith persona( co6puter 6anu0acturers. F21G %erver and #ools : So0t>are server products@ services and so(utions@ inc(udin'8 4indo>s Server operatin' syste6@ Microso0t SOL Server@ Microso0t Enterprise Services@ 2isua( Studio@ Syste6 1enter products@ $ore0ront security products and i= ,a(k Server. F22G

nline %ervices Business : 1onsists o0 an on(ine advertisin' p(at0or6 >ith o00erin's 0or pu/(ishers and advertisers@ persona( co66unications services such as e86ai( and instant 6essa'in'@ and on(ine in0or6ation o00erin's such as Live Search and the MS" porta(s and channe(s. F23G

Microso-t Business 6ivision : Inc(udes the Microso0t ;00ice suites@ desktop pro'ra6s@ servers@ and services and so(utionsC Microso0t Dyna6icsC and .ni0ied 1o66unications /usiness so(utions. F23G

Entertainment and 6evices 6ivision : 1onsists o0 the :/o< video 'a6e syste6@ inc(udin' conso(es and accessories@ :/o< Live operations@ Dune di'ita( 6usic and entertain6ent deviceC Media roo6@ 6o/i(e and e6/edded device p(at0or6s@ Sur0ace co6putin' p(at0or6@ and 4indo>s )uto6otive. F2&G

/. "om)etitors Microso0t?s pri6e co6petitors in the so0t>are industry are: (oo0le Inc. (( ()

)n )6erican pu/(ic corporation@ earnin' revenue 0ro6 advertisin' re(ated to its Internet search@ e86ai(@ on(ine 6appin'@ o00ice productivity@ socia( net>orkin'@ and video sharin' services as >e(( as se((in' advertisin'80ree versions o0 the sa6e techno(o'ies. -oo'(e is >e(( kno>n 0or its open source >e/ /ro>ser and is today one o0 the 6ost popu(ar search en'ines used '(o/a((y. Its initia( pu/(ic stock o00erin' FI5;G took p(ace on the 19th )u'ust 2003 at L%& per share. ,oday its shares are priced at L&90.&1. IBM Internationa( usiness Machines FI MG is a 6u(tinationa( co6puter techno(o'y and I, corporation head7uartered in "e> Mork. I M 6anu0actures and se((s co6puter hard>are and so0t>are F>ith a 0ocus on the (atterG@ and o00ers in0rastructure services@ hostin' services@ and consu(tin' services in areas ran'in' 0ro6 6ain0ra6e co6puters to nanotechno(o'y. ,oday I M shares are se((in' at L 129.*% per share. racle "or)oration ( R"L) ) 6u(tinationa( co6puter techno(o'y corporation that specia(i=es in deve(opin' and 6arketin' enterprise so0t>are products@ particu(ar(y data/ase 6ana'e6ent syste6s. ;rac(e has 6ana'ed to en(ar'e its share o0 the so0t>are 6arket throu'h or'anic 'ro>th and throu'h a nu6/er o0 hi'h8pro0i(e ac7uisitions. In 2007 ;rac(e had the third8(ar'est so0t>are revenue@ a0ter Microso0t and I M. ,he corporation has ar'ua/(y /eco6e /est8 kno>n due to association >ith its 0(a'ship product@ the ;rac(e data/ase. ,oday@ ;91L shares are se((in' at L 22.7% per share. 7. Per-ormance Anal4sis 8 Microso-t &s "om)etitors Microso0t co6petes in the Software Industry and is (isted on the stock e<chan'e under MS$, >hich is a 6a#or co6ponent o0 the SK5 &00@ Do> Industria(s and "asda7 100 inde<es. $or the purpose o0 this report >e have carried out our ana(ysis o0 MS$, per0or6ance a'ainst co6petitor per0or6ance 0or -oo'(e F-;;-G@ ;rac(e F;91LG and I M@ 0or >hich >e >i(( co6pare annua( and 7uarter(y 0inancia( resu(ts. %.1. &ndustry 'erfor(ance !ere >e atte6pt to provide so6e insi'ht into the 0inancia( per0or6ance o0 MS$, ne<t to its co6petitors Fa(( data re0erred to is 0ound in the )ppendi<G. 8

7.1.1. Return on Assets (R A) 9;) provides an indication o0 MS$,?s pro0ita/i(ity re(ative to its tota( assets and is indicative o0 ho> e00icient 6ana'e6ent is@ at usin' its assets to 'enerate earnin's. 1a(cu(ated /y dividin' a co6panyEs annua( earnin's /y its tota( assets@ 9;) is disp(ayed as a percenta'e. So6eti6es this is re0erred to as Preturn on invest6entP. )s is evident in $i' 7@ MS$,?s per0or6ance ne<t to co6petitors is avera'e and as can /e seen@ the co6pany has /ene0ited 0ro6 stron' annua( earnin's since 2003@ thus increasin' 9;). %.2. inancial Strength ,he 0o((o>in' ratios are o0 interest to e<istin' and potentia( shareho(ders. 7.2.1. Return on E9uit4 9;E is use0u( in co6parin' the pro0ita/i(ity o0 a co6pany to that o0 other 0ir6s in the sa6e industry and is o0 interest to potentia( shareho(ders >hen decidin' >hich co6pany to invest their 6oney. !i'her return on e7uity i6p(ies 6ore e00icient use o0 shareho(ders e7uity to>ards the tota( inco6e 'enerated /y the co6pany. 9e0errin' to $i' 3 >e can see MS$,?s 9;E has decreased 0ro6 a hi'h in 1999 at 3*I to 12I in 2003@ /e0ore recoverin' stron'(y to over &0I in 200%. ,his positive increase in 9;E 0ro6 2003 >as associated >ith stron'er 'ro>th in "et Inco6e co6pared >ith 'ro>th in shareho(der e7uity. It is not as e00icient co6pared >ith industry co6petitors /ut MS$, does sho> (ess 0(uctuation Fvo(ati(ityG over the years F13G. 7.2.2. (earin0 ratio -earin' ratio o0 a co6pany sho>s the dependence on /orro>ed 0unds as co6pared to its o>n 0unds. De/t usua((y inc(udes (on' ter6 /orro>in's >hich inc(ude (on' ter6 /ank (oans@ de/entures and pre0erence shares. E7uity on the other hand is the sa6e as shareho(ders o>n 0unds and usua((y inc(udes share capita( Q reserves. -earin' is a 6easure o0 0inancia( (evera'e@ de6onstratin' the de'ree to >hich a 0ir6Es activities are 0unded /y o>nerEs 0unds versus creditorEs 0unds. ,he hi'her a co6panyEs de'ree o0 (evera'e@ the 6ore the co6pany is considered risky. ) co6pany >ith hi'h 'earin' Fhi'h (evera'eG is 6ore vu(nera/(e to do>nturns in the /usiness cyc(e /ecause the co6pany 6ust continue to service its de/t re'ard(ess o0 ho> /ad sa(es are. ) 'reater proportion o0 e7uity provides a cushion and is seen as a 6easure o0 0inancia( stren'th. 9

4hen co6parin' Microso0tEs 'earin' ratio >ith the industry@ >e can see it is considera/(y (o>. !istorica( data sho>s no record o0 (on' ter6 de/t thus te((in' us that Microso0t is (o> 8'eared >ith a (o> proportion o0 (oans. It can /e in0erred that 8 /ased on its (o> 'earin' ratio 8 investin' in Microso0t is a potentia((y (o> risk invest6ent co6pared >ith co6petitors. 7.2.5. Earnin0s )er %1are Earnin's per share FE5SG are the earnin's returned on the initia( invest6ent a6ount. )dditiona((y@ it is the portion o0 a co6panyEs pro0it a((ocated to each outstandin' share o0 co66on stock. E5S serves as an indicator o0 a co6panyEs pro0ita/i(ity Fthe hi'her the 5JE the 6ore the 6arket is >i((in' to pay 0or the co6pany?s earnin'sG. E5S is the >ay to ca(cu(ate ho> 6uch 1 share earns 0ro6 the or'ani=ation. ased on Septe6/er 2009 7uarter resu(ts@ Microso0t spent 20.39I o0 'ross pro0its on 9KD and 3&.03I on se((in'@ 'enera( and ad6inistrative FS-)G e<penses. 9evenues 0e(( 13.22I year on year to L12.92 . ,he co6pany in 2009 is tradin' at 19.20 ti6es earnin's F5EG and 3.*9 ti6es revenue F5S9G. )t the end o0 Septe6/er 2009@ Microso0t had L3*.73 in cash in hand and L3.7& in (on'8ter6 de/t. ;n 23 rd ;cto/er 2009@ Microso0t reported net inco6e o0 L3.&7 @ >ith di(uted earnin's per share o0 L0.30. ,he co6pany has ho>ever 6ana'ed to de(iver an 11.30I avera'e annua( increase in its E5S since 1999. F%G It shou(d /e noted that Microso0t is very (ar'e or'ani=ation >ith 6any shares@ and a(thou'h it records 'ood net pro0it@ the hi'her 0i'ure o0 shares is the reason >hy its E5S is (o>er in co6parison >ith co6petitors F9e0er to )ppendi< 0i'ure 9G. 7.2./. P:E Ratio ,he 5JE ratio o0 a co6pany is the 6ost popu(ar ratio a6on' the investin' co66unity. It /rin's to'ether the 6arket share price o0 the co6pany >ith the pro0ita/i(ity o0 the co6pany. It is in 0act very i6portant to the investin' co66unity that is co6pu(sory 0or pu/(ic co6panies to disc(ose it in their annua( pro0it (oss account. ,he hi'her the 5JE ratio@ the 6ore the 6arket is >i((in' to pay 0or each L or R o0 annua( earnin's. 1o6panies >ith hi'h 5JE ratios are 6ore (ike(y to /e considered PriskyP invest6ents than those >ith (o> 5JE ratios@ since a hi'h 5JE ratio si'ni0ies hi'h e<pectation. ,he 5E ratio 'ives an investor a /etter understandin' o0 a co6pany?s va(ue. asica((y >ith the 5E ratio >e can ca(cu(ate ho> 6any do((ars >e are payin' 0or each do((ar o0 a 10

co6pany?s earnin's. 4e can see in the 5E ratio 'raph that Microso0t has a 5E o0 11.3& >hich is a considera/(e (o> 5E ratio F9e0er )ppendi< 0i'ure 3G 7.2.7. 6ividend 4ield ) 0inancia( ratio that sho>s ho> 6uch a co6pany pays out in dividends each year re(ative to its share price. In the a/sence o0 any capita( 'ains@ the dividend yie(d is the return on invest6ent 0or a stock. -enera((y speakin'@ there is no /i' di00erence /et>een Microso0t?s dividend yie(ds ratio co6pared >ith the SK5 &00. ;n the other hand@ co6parin' >ith I M and ;9)1LE it is hi'h. ) hi'h dividend yie(d can /e considered to /e evidence that a stock is under priced or that the co6pany has 0a((en on hard ti6es and 0uture dividends >i(( not /e as hi'h as previous ones. Si6i(ar(y a (o> dividend yie(d can /e considered evidence that the stock is overpriced or that 0uture dividends 6i'ht /e hi'her. Microso0t has 2.&7I dividend yie(d@ hi'her than co6petitors and 6aintains its position as 6arket (eader F9e0er )ppendi< 0i'ure 10G. Most 'ro>th stocks Fco6panies in a rapid(y e<pandin' 6arketG donEt pay dividends. Such is the case 0or -;;- and M)!;; >ho instead turn the 6oney /ack into the co6pany in order to 0und 'ro>th. ,his ena/(es the6 to >ithho(d 0ro6 /orro>in' Fhe(pin' stockho(ders /y not re7uirin' the6 to pay 6ore interestG or issue 6ore stock Fhe(pin' stockho(ders /y not di(utin' o>nershipG. 1o6panies in 6ore sta/(e industries are the ones 6ore (ike(y to pay dividends. %.3. )i#uidity ratios* 7.5.1. "urrent ratio ,he current 9atio is one o0 the tests o0 an or'ani=ation?s 0inancia( stren'th. It ca(cu(ates ho> 6any assets are (ike(y to /e converted to cash >ithin one year in order to cover de/ts that 0a(( due durin' the sa6e year. ) 1urrent ratio o0 1.& is nor6a((y accepta/(e as it indicates a co6pany can pay its de/ts 0ro6 its current assets. Microso0t?s current ratio o0 1.&9 ena/(es us to conc(ude it is in a re(ative(y 'ood 0inancia( position Fsee 0i'ure & K *G. 6. Re0ulators ,hese are key /odies that esta/(ish@ 6onitor@ re0or6 and en0orce re'u(ations 0or co6panies. ) re'u(ators 6ain 0unction is to protect current and potentia( investors and 11

to 6aintain 0air@ order(y@ and e00icient 6arkets that 0aci(itate capita( 0or6ation. ,he In0(uence o0 re'u(ators is o0 e<tre6e i6portance in the case o0 Microso0t due to the 0act that re'u(ators tend to pay 6ore attention to (ar'er corporations than s6a(( co6panies and this invaria/(y a00ects the pri6ary activities at Microso0t. ,he ..S. Securities and E<chan'e 1o66ission@ the .nited States Depart6ent o0 Bustice and the European 1o66ission p(ace a (ot o0 pressure on co6panies (ike Microso0t to po(ice and contro( pricin' po(icies@ set pricin' cei(in's@ patents@ pro0it cei(in' per product@ 6arket share etc. +.1. ,S S-C,.&/&-S A01 -2CHA03- C4MM&SS&40 1o66on(y kno>n as the FSE1G@ is an independent a'ency o0 the .nited States 'overn6ent that ho(ds pri6ary responsi/i(ity 0or en0orcin' the 0edera( securities (a>s and 0or re'u(atin' the securities industry@ the nationEs stock and options e<chan'es@ and other e(ectronic securities 6arkets. ,he (a>s and ru(es that 'overn the securities industry in the .nited States derive 0ro6 a si6p(e and strai'ht0or>ard concept: Aa(( investors@ >hether (ar'e institutions or private individua(s@ shou(d have access to certain /asic 0acts a/out an invest6ent prior to /uyin' it@ and 0or the duration they ho(d it?. ,o achieve this@ the SE1 re7uires pu/(ic co6panies to disc(ose 6eanin'0u( 0inancia( and other in0or6ation to the pu/(ic F3G. ecause Microso0t head7uarters are (ocated in the ..S@ this /ody has a po>er0u( i6pact on the co6pany?s stocks and pricin' po(icy and recent announce6ents o0 the SE1 have in0(uenced 6any o0 Microso0t?s decisions. +.2. ,0&/-1 S/A/-S -1-.A) -2-C,/&V- 1-'A./M-0/ ,he .nited States Depart6ent o0 Bustice FD;BG is the .nited States 0edera( e<ecutive depart6ent responsi/(e 0or the en0orce6ent o0 the (a> and ad6inistration o0 #ustice@ e7uiva(ent to the #ustice or interior 6inistries o0 other countries. 9ecent (a>s@ F0or e<a6p(e that 6onopo(istic strate'ies shou(d /e strict(y 0or/iddenG have 0orced Microso0t to chan'e pricin' o0 so0t>are products 0or co6putin' devices. ,he .nited States Depart6ent o0 Bustice en0orces (a>s that /i' 6u(tinationa( co6panies 6ust 0o((o>. Microso0t cannot char'e products at any price@ /ecause potentia( y settin' a product cei(in'@ Microso0t (i6its its pro0its@ custo6ers are protected.

resu(tin' in a (o>er distri/ution o0 pro0its to shareho(ders.

12

)n i6portant 0actor that a00ects the operations o0 Microso0t is the prohi/ition o0 a 6onopo(y. Microso0t 1orporation prides itse(0 in havin' a presence in 6ore than 90I o0 (ocations >here there is a need 0or co6puter syste6. ,heir 6arket share 6i'ht /e in (ine >ith the presence o0 custo6ers de6andin' co6puter syste6s and accessories@ /ut a 6arket share o0 this 0i'ure F90IG is strict(y prohi/ited in the .S. +.3. -,.4'-A0 C4MM&SS&40 ,he European 1o66ission F0or6a((y the 1o66ission o0 the European 1o66unitiesG acts as an e<ecutive o0 the European .nion. ,he /ody is responsi/(e 0or proposin' (e'is(ation@ i6p(e6entin' decisions@ upho(din' the .nionEs treaties and the 'enera( day8 to8day runnin' o0 the .nion. ,he European 1o66ission has ru(ed a'ainst Microso0t 0or various antitrust vio(ations and has en0orced (e'is(ation@ treaties@ and decisions that have to /e respected /y co6panies. Decisions and (ar'e /i(atera( contracts shou(d /e 0o((o>ed /y Microso0t >hen en'a'in' >ith co6panies that operate in the European .nion. ,his is /etter e<p(ained /y the 0act that the E. and ..S are each other?s 6ain tradin' partners in 'oods and services and thus account 0or the (ar'est /i(atera( trade re(ationship in the @ as >e(( as providin' each other >ith the 6ost i6portant source o0 0orei'n direct invest6ent F$DIG. ;vera((@ re'u(ators p(ay a decisive ro(e in ter6s o0 Microso0t?s strate'ies and operations. Decisions /y the ..S. Securities and E<chan'e 1o66ission@ .nited States Depart6ent o0 Bustice and European 1o66ission have an i6pact on Microso0t?s current and potentia( shareho(ders@ and investors. 5ricin' products is very i6portant 0or (ar'e co6panies (ike Microso0t and co6p(iance >ith the (a>s and re'u(ations o0 these /odies indirect(y a00ects the overa(( pro0ita/i(ity and 6arket share o0 Microso0t /ecause esta/(ishin'@ 6onitorin'@ re0or6in' co6pany. ;. %1ort and Lon0 #erm Pers)ectives ,his (ast section hi'h(i'hts so6e i6portant events@ na6e(y ac7uisitions and ne> product deve(op6ents /y Microso0t that >i(( he(p shape our 0ina( conc(usion. 5.1. Microsoft -67ands Virtuali8ation &nitiatives 9ith H' In 200%@ Microso0t announced e<panded product@ sa(es and services initiatives >ith !5 ai6ed at he(pin' /usinesses 6ore easi(y adopt and dep(oy virtua(i=ation to he(p (o>er 13 and en0orcin' re'u(ations is a 6ust 0or every

in0or6ation techno(o'y costs and 6ake I, 6ore e00icient. Microso0t has e<panded its >ork to'ether >ith !5 to se(( and 6arket stora'e@ server and net>orkin' conso(idation so(utions and desktop virtua(i=ation so(utions to s6a((8@ 6ediu68si=ed8 and (ar'e8 /usiness custo6ers >or(d>ide. ,his >as a strate'ic 6ove on /eha(0 o0 the t>o co6panies >ho have /een a/(e to achieve a dyna6ic I, in0rastructure that can a(6ost dou/(e co6putin' capacity on de6and across the enterprise@ >hich is hu'e. $urther6ore@ the dea( ena/(es the6 to conso(idate their in0rastructure /y *0 percent@ reducin' operationa( costs /y 30 percent@ >hich 6a<i6i=es va(ue 0or their shareho(ders F17G. 5.2. /he 9orld9ide launches of Windo9s 5 47erating Syste( 4indo>s 7 has /een set to /reak retai( records and has /eco6e the /i''est8'rossin' pre8order in )6a=onEs history H >orth even 6ore than the 6ost recent B+ 9o>(in' /ook@ !arry 5otter and the Death(y !a((o>s. P,he (aunch o0 4indo>s 7 has superseded everyoneEs e<pectations@P the 6ana'in' director o0 )6a=on.co.uk@ PDe6and is sti(( 'oin' stron'.P rian Mc ride@ said.

Source: Client evenues !"#$ Microso0t?s 0ourth 7uarter earnin's 0or 2009 >ere /etter than e<pected@ /ut the so0t>are 'iant?s c(ient F4indo>sG revenue skidded 29 percent co6pared >ith 200%. $or the three 6onths ended Bune 30@ Microso0t?s c(ient revenue >as L3.1 /i((ion@ do>n 0ro6 L3.3* 14

/i((ion a year a'o. ,hat s(ide in 4indo>s revenue (ed to a 7uarter(y sa(es short0a(( o0 6ore than L1 /i((ion re(ative to 4a(( Street esti6ates. $or the 0ourth 7uarter@ Microso0t reported net inco6e o0 L3.0& /i((ion@ or 33 cents a share@ on revenue o0 L13.10 /i((ion@ do>n 17 percent 0ro6 a year a'o. ,hat 0ourth 7uarter state6ent inc(udes L27* 6i((ion o0 4indo>s 7 revenue de0erred. ,hat de0erra( Ahurt Aearnin's /y 2 cents a share. Mean>hi(e@ there >ere a 0e> other 6ovin' >rite8o00s. Microso0t?s 0ourth 7uarter resu(ts inc(uded L193 6i((ion in char'es@ L10% 6i((ion in /u6 invest6ents and L30 6i((ion in severance costs. ,hose ite6s reduced earnin's /y another 2 cents a share. 1(ient revenue decreased pri6ari(y as a resu(t o0 51 6arket >eakness@ especia((y 51s so(d to /usinesses@ and a 13 percenta'e point dec(ine in the ;EM pre6iu6 6i< to &9I. 9evenue 'ro>th 0ro6 4indo>s operatin' syste6s >as a(so i6pacted /y a L27* 6i((ion de0erra( 0or the 4indo>s 7 .p'rade ;ption pro'ra6. ;EM revenue decreased L1.1 /i((ion or 31I@ >hi(e ;EM (icense units decreased 10I. ased on our esti6ates@ tota( >or(d>ide 51 ship6ents 0ro6 a(( sources dec(ined appro<i6ate(y &I to 7I@ driven /y decreased de6and in e6er'in' and deve(oped 6arkets. See ta/(e /e(o>.

Source:

evenues Metrics !""$

15

5.3. -:ay /ea(s ,7 With Microsoft to 4ffer 1aily 1eals Internet E<p(orer % is considered to /e the 0astest >ay to a(( the /est dea(s on e ay and in In 200%@ Microso0t and e ay Inc announced their partnership to o00er e ay Dai(y Dea(s throu'h a ne> Internet E<p(orer % 4e/ S(ice 0or the upco6in' ho(idays.

4ith 6ost ho(iday shoppers (ookin' to save 6oney@ Microso0t and e ay decided to present on(ine Dai(y Dea(s throu'h a ne> 4indo>s Internet E<p(orer % 4e/ S(ice that sho>cases popu(ar products se((in' at deep discounts. 1usto6ers >i(( receive continuin' updates and detai(ed in0or6ation a/out these Dai(y Dea(s 0or e ay@ a(( >ithin the $avorites ar in Internet E<p(orer %. 5.4. Microsoft ;uys data Centre soft9are fir( 47alis ;n Dece6/er 11th 2009@ Microso0t said that it had ac7uired ,oronto8/ased ;pa(is So0t>are@ a 6aker o0 data center 6ana'e6ent so0t>are. Microso0t did not disc(ose 0inancia( detai(s o0 the transaction@ /ut said that the 6ove >i(( au'6ent its Syste6 1enter (ine o0 6ana'e6ent so0t>are. PI /e(ieve this ac7uisition is a pivota( piece to de(iver on our dyna6ic data center initiative@P Microso0t vice president rad )nderson said in a /(o' postin'. P,his dea( /rin's to'ether the deep data center auto6ation e<pertise o0 ;pa(is >ith the inte'rated physica( and virtua(i=ed data center 6ana'e6ent capa/i(ities o0 Microso0t Syste6 1enterP F23G.

16

<. "onclusion )s Microso0t enters a ne> 0isca( year@ >e /e(ieve the co6pany is idea((y positioned to drive stron' 'ro>th in 2010 and /eyond. Despite certain shortco6in's in the 0ina( 7uarter o0 2009@ Microso0t disp(ays stron' 6o6entu6 and a 'reat pipe(ine o0 products and techno(o'ies. Even 6ore i6portant@ the co6pany has 'reat peop(e at every (eve(@ inc(udin' stron' (eaders >ho have the e<perience and strate'ic insi'ht to turn the opportunities that (ie ahead into even 'reater success in the 0uture. $or 6ore than 30 years@ Microso0t has en#oyed tre6endous success /y de(iverin' key innovations that have revo(utioni=ed the >ay peop(e co66unicate@ share ideas@ 6ana'e their /usinesses@ and 6uch 6ore. ,oday@ they are in the 6idst o0 one o0 the 6ost e<citin' periods in the history o0 the so0t>are industry as co6putin' continues to /eco6e 6ore po>er0u(@ 6ore porta/(e@ and 6ore a00orda/(e. 1ontent@ co66unications@ and 6edia are shi0tin' entire(y to di'ita( 0or6ats and the co6/ination o0 so0t>are p(us services is trans0or6in' the >ay co6panies create and de(iver co6putin' e<periences. Microso0t continues to produce products that are >ide(y used throu'hout the '(o/e and the co6pany has 6ana'ed to co6/at to so6e e<tent the i6pact o0 the '(o/a( recession /y stren'thenin' its position throu'h various ac7uisitions and continuous product i6prove6ent. $inancia( eva(uation o0 Microso0t (eads us to conc(ude that the co6pany has very 'ood (i7uidity position@ a hea(thy 'earin' ratio@ a 'ro>in' E5S and an overa(( positive out(ook >ithin the industry. Microso0t operates in a pro6isin' 6arket >ith 'ro>in' potentia( and pro0ita/i(ity and is the do6inant (eader in 6any di6ensionsC pro0ita/i(ity@ capita( /ase@ e<pertise@ and kno> ho>. ased on its (o> 'earin' ratio@ investin' in Microso0t is a potentia((y (o> risk invest6ent co6pared >ith co6petitors. -iven the co6pany?s o/#ective to continua((y 6eet custo6er needs@ >e 0e(( that Microso0t >i(( continue /e a success0u( co6pany and an attractive invest6ent 0or potentia( investors and 0or e<istin' shareho(ders. $i'ure 11 sho>s the current share prices 0or MS$, and co6petitors as at 13 Dece6/er 2009. F23G 17

,. Re-erences 1. MS%& Investor elations. )vai(a/(e at: S http:JJ>>>.6icroso0t.co6J6s0tJreportsJar0%J10kTs(Ten'.ht6( U V)ccessed 27th "ove6/er 2009W 2. Microsoft Company 'e(site. )vai(a/(e at: S http:JJ>>>.6icroso0t.co6J6s0tJicJ1o6pany;vervie>.asp<Xta/Y5er0or6ance U V)ccessed 2%th "ove6/er 2009W. 3. Microsoft Company 'e(site. )vai(a/(e at: S http:JJ>>>.6icroso0t.co6Ja/outJde0au(t.6sp<U V)ccessed 29th "ove6/er 2009W. 3. Securities and )*change Commission. )vai(a/(e at: Shttp:JJ>>>.sec.'ovJa/outJ>hat>edo.sht6(U V)ccessed %th Dece6/er 2009W. &. European .nion. A +uide for Americans. )vai(a/(e at: Shttp:JJeurunion.or'JeuJi6a'esJ5D$Jeu'uide2009.pd0U V)ccessed %th Dece6/er 2009W. *. Microso0t 1orporation. ,##- Annual eport. )vai(a/(e at: Shttp:JJ>>>.6icroso0t.co6J6s0tJreportsJar09J10kT0rT/usT0&.ht6(U V)ccessed %th Dece6/er 2009W. 7. M1harts. Microsoft. )vai(a/(e at: S http:JJycharts.co6Jco6paniesJMS$, U V)ccessed 10th Dece6/er 2009W. 8. ,ech 1runch. 'S. Says Microsoft/0ahoo 1eal 2ot 3appening. )vai(a/(e at: S http://www.techcrunch.com/,##4/#5/#6/ws78says8microsoftyahoo8deal8not8 happening 9 V)ccessed 10th Dece6/er 2009W. 9. 1(ient 9evenue. :6 Summary. )vai(a/(e at: S http:JJ>>>.seven0oru6s.co6Jattach6entsJne>sJ2027*d123%79*&*786icroso0t8 re(eases8738resu(ts8pro0its8do>n82986s0t072309a.#p' U V)ccessed 12th Dece6/er 2009W. 10. Seven $oru6s. 'indows 4. )vai(a/(e at: Shttp:JJ>>>.seven0oru6s.co6Jne>sJ1%&2&86icroso0t8re(eases8738resu(ts8pro0its8 do>n8298a.ht6(U V)ccessed 12th Dece6/er 2009W. 11. Microso0t 5ress 5ass. MS%& announces Chief %inancial officer &ransition. )vai(a/(e at: Shttp:JJ>>>.6icroso0t.co6JpresspassJpressJ2009Jnov09J118

18

23corpne>s59.6sp<XrssT0dnY5ressI209e(easesU V)ccessed 13th Dece6/er 2009W. 12. Microso0t 5ress 5ass. MS%& outlines growth agenda at Annual shareholder meeting. Von(ineW. )vai(a/(e at: Shttp:JJ>>>.6icroso0t.co6J5resspassJpressJ2009Jnov09J118 19"ov09Shareho(der59.6sp<XrssT0dnY5ressI209e(eases U V)ccessed 13th Dece6/er 2009W. 13. So0tpedia. MS%& deal fails to appease 0ahoo. )vai(a/(e at: Shttp:JJne>s.so0tpedia.co6Jne>sJMicroso0t8Dea(8$ai(s8to8)ppease8Mahoo8 Shareho(ders8120&3&.sht6( U V)ccessed 13th Dece6/er 2009W. 13. Microso0t >e/site. MS%& announces %: results. )vai(a/(e at: Shttp:JJ>>>.6icroso0t.co6J6s0tJearnin'sJ0y10JearnTre(T71T10.6sp< . U V)ccessed 13th Dece6/er 2009W. 1&. Microso0t 5ress 5ass. MS%& e*pands virtuali;ation initiatives with 3<. )vai(a/(e at: Shttp:JJ>>>.6icroso0t.co6JpresspassJpressJ200%Jnov0%J11817!52irt59.6sp< U V)ccessed 13th Dece6/er 2009W. 1*. )(( usiness. Microsoft strengths and 'eaknesses. Initiatives with 3<. )vai(a/(e at: Shttp:JJ>>>.a((/usiness.co6JeuropeJ>estern8europe8ire(and8du/(inJ&23733381.ht6(U V)ccessed 13th Dece6/er 2009W. 17. !o> stu00 4orks. 'ill +oogle destroy Microsoft. Initiatives with 3<. )vai(a/(e at: Shttp:JJco6puter.ho>stu00>orks.co6J'oo'(e86icroso0t2.ht6U V)ccessed 10th Dece6/er 2009W. 1%. Microsoft strengths and 'eaknesses. )vai(a/(e at: Shttp:JJ>>>.s(ideshare.netJvinayak.nandiJ6icroso0t8stren'th8and8>eaknessU V)ccessed 10th Dece6/er 2009W. 19. Microso0t Investor 9e(ations. 'indows and 'indows live division. )vai(a/(e at: Shttp:JJ>>>.6icroso0t.co6J6s0tJI1Jse'6entsTc(ient.asp<U V)ccessed 9th Dece6/er 2009W. 20. Microso0t Investor 9e(ations. Server and &ools. )vai(a/(e at:Shttp:JJ>>>.6icroso0t.co6J6s0tJI1Jse'6entsTserver.asp<U V)ccessed 9th Dece6/er 2009W. 21. Microso0t Investor 9e(ations. =nline Services 1ivision. )vai(a/(e at:Shttp:JJ>>>.6icroso0t.co6J6s0tJI1Jse'6entsTos/.asp<U V)ccessed %th Dece6/er 2009W. 19

22. Microso0t Investor 9e(ations. )ntertainment and 1evices 1ivision. )vai(a/(e at :Shttp:JJ>>>.6icroso0t.co6J6s0tJI1Jse'6entsTedd.asp<U V)ccessed %th Dece6/er 2009W. 23. 1"et "e>s. Microsoft >uys data centre software firm =palis. )vai(a/(e at: Shttp:JJne>s.cnet.co6J%301813%*0T3810313%3*8&*.ht6(U V)ccessed 13th Dece6/er 2009W. 23. -oo'(e $inance. )vai(a/(e at: S http:JJ>>>.'oo'(e.co6J0inanceX c(ientYo/K7Y"MSE:I M U V)ccessed 13th Dece6/er 2009W.

20

10.

APPENDIX

Fi0 1: (ross Pro-it Mar0in (=)

Source: Mornin' star >e/site

Fi0 2: Revenue (>Millions)

21

Fi0 5: Return on E9uit4 (=)

Fi0 /: $istorical P:E

22

Fi0 7: "urrent Ratio

Fi0 6: "urrent Ratio (Most Recent ?uarter)

" @R R E N# R A#I (MR ?)

%@7*

1@&9

1@1&

1@9&

2@*&

1@2*
5 &0 0

I" D . S, 9 M

; ; -

; 9 1 L

S$ ,

23

S K

Fi0 ;: Return on Assets A R A

Fi0 <: (earin0 Ratio

100@00I &0@00I 0@00I

3 200 200& 007 2 O M9

MS$, -;;I M ;91L Industry SK5&00

24

Fi0 ,: $istorical Earnin0s Per %1are 8 EP%

$I% # RI"ALE P%:1,,,: 2++<

13 12 10 % * 3 2 0 1999 2000 200* 2001 2002 2003 2003 200& 2007 200% MS $, I M ;91L -;;-

Fi0 1+: 6ividend 'ield

Fi0. 11: %1are )rices at 15 6ecem*er 2++,

25

" MPAN' MS$, I M ;91L -;;-

PRI"E

F %$ARE IN @% > 29.%& 129.*% 22.7% &90.&1

26